As of Tuesday morning, the good people of Charlotte, N.C., can order a car the same way they order pizza. The only real difference is delivery takes a day or two and the vehicle, unlike the pie, can be financed.
Carvana, the startup offering point-and-click car buying with speedy delivery, is takings its unusual approach to auto sales across the Southeast. At this point there are far more companies trying to disrupt the car-shopping process than there are companies making vehicles in the U.S. With no clear winner yet and remarkable fragmentation, Carvana’s usual approach might have promise.
The startup proved to have a highly efficient sales engine in Atlanta, where it started selling cars early last year. Dealing exclusively in used cars, the general idea is straight out of the e-commerce playbook: cut out the middle-man. Without a showroom, bad coffee and a squad of salesmen, Carvana claims to sell cars for a lot less than old-fashioned dealerships.
“The buyer saves about four hours of time and $1,500 in value,” Carvana Chief Executive Ernie Garcia said in an interview. “I’m convinced dealerships aren’t purposefully creating bad experiences, they just have huge cost structures they have to support.”
Once a shopper finds a ride that they like, they can take a virtual tour online where any dings, scuffs or scratches are helpfully flagged. Clicking through, they can finance the car through Carvana, tack on a warranty, and schedule a delivery time.
The fastest purchase recorded by Carvana so far took just 11 minutes, start to finish. The startup’s legions of rivals, including Edmunds.com and TrueCar (TRUE), mostly seek to cutt out the haggling, not necessarily the trip to the dealership.
Instead of test drives, Carvana offers a seven-day return window in which there is no penalty for sending back the car. About two percent of buyers back out during that time, but Garcia said that half of those customers simply buy a different vehicle from Carvana.
Getting inventory isn’t a problem. The company buys from individual owners, rental car fleets, and auctions. Pricing isn’t an issue, either, given the highly fluid state of the current used-car market.
The biggest challenge, according to Garcia, is convincing people it’s a good idea to order a car sight unseen. Carvana’s ability to court used-car buyers depends on just how effectively it can explain the advantages of its unusual sales model. “It takes some time for people to get comfortable with it,” Garcia admits. “But everyone who does it helps spread the word.”
In Charlotte this week, Carvana is making its case with a fairly amusing TV commercial. The launch marks Carvana’s third market, alongside sales in Atlanta and Nashville. The company supports all three cities from a single facility in Georgia, where it reconditions cars before shipping them out to buyers.
The company has been financed by DriveTime, a Phoenix-based network of used car dealerships, although Garcia says he has been talking to venture capitalists these days.
And while Carvana has yet to turn a profit, Garcia expects to book $50 million in sales this year. With an average transaction price of $20,000 to $25,000, the startup will probably sell somewhere around 2,200 vehicles this year. That’s either pitifully small or a proof of concept—and either way it’s certainly enough to rattle the used-car dealers of Charlotte.
